“The Next Cisco” and Email Influence on Shares

By Travis Johnson, Stock Gumshoe, August 31, 2007

We’ve written about the “next Cisco” before — last time, it was DivX and it was being teased by Brian Hicks … not terribly successful, so far.

This time, however, we’re looking at another older teaser that’s made the rounds many times — I’ve seen it going back to at least March. And since this is a microcap company, we’re going to do a little bit of educational math, too.

Wait … come back! I promise you won’t have to do the math. I just want to take advantage of the fact that this same stock has been touted consistently over nearly a six month period to look at the impact that email teaser ads (let alone full recommendations) might have on the stock price of these smaller companies.

But first, a little gumshoein’. Let’s figure out what the company is.

Some of you already know this one — and it’s one of many Tobin Smith ChangeWave MicroCap recommendations that focus on internet broadband and the need for speed.

Appropriate, since he builds this newsletter on identifying big trends, in part by using his ChangeWave network of professionals who fill out regular online questionnaires (I’ve been invited to that network, which comes with some free access to his newsletters, but have never joined).

As far as I’ve seen, Smith then tries to find small companies, often microcap companies trading over the counter, to capitalize on them. One other one in a similar vein that we looked at earlier was Voyant, which sells the Rocketspeed net acceleration technology. That one’s down 20%+ since I saw his email ad.

This one, though, is probably a more appropriate use of the “next Cisco” moniker that Hicks applied to DivX, since it’s a network switching company that really aims to do very nearly what Cisco’s core business does, only better. “Next Cisco” teasers are nearly as thick on the ground as “next Berkshire Hathaway” and “next Google” teasers, but I guess the little guys have got to aspire to something — and it’s hard to tear down any of those three.

So what do we know about this company from the myriad emails that urged us to buy?

From Smith’s email of early August, “a tiny company, trading on the OTC Bulletin Board, [has] developed a new network architecture and switch technology that blows away the established standard.”

Company is less than four years old.

Their technology solves the “hub and spoke” problem of current networks that jams traffic.

“Its breakthrough technology delivers up to 1,000-times the speed at about one-fourth the price of older technologies.”

This “new technology takes up less space…burns less energy…and costs about one-fourth the price.”

Well, as some of you already know (there were many more clues in the email that I’m too lazy to translate, as well as others in the dozens of similar emails I’ve received), this company is …

Raptor Networks (RPTN, trades OTC).

The company actually does a pretty good and clear job of explaining its technology and products on its website if you’re interested in learning more — it’s still mostly gobbledygook to me, but I get the basic point.

Of course, whether or not it’s possible for anyone to take market share from Cisco with a whole new type of product is quite debatable. Smith does note that their path forward might be a sale of the company to a big player in this space who can better get customers to “take a chance” with something new. In various emails he intimated that he thought the company might be sold for over $10 in the next year or two, or twice that if they hold out longer.

That’s certainly a ways off in the distance, and might take some sort of leap of faith. I’ve put down a small amount of money to gamble on shares of this one myself, since I sometimes have as much trouble resisting emotional investing urges as anyone else, but here are some things I don’t know anything about:

Do competitors have even better technology in the works — or, worse yet, can Cisco develop something just as good without violating their patents? I just read an article that made me terribly jealous that was all about the dramatically higher broadband speeds that are available in Japan and Korea already R